Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing of Units of the United States Short Oil Fund, 72892-72897 [E8-28419]
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Federal Register / Vol. 73, No. 231 / Monday, December 1, 2008 / Notices
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–Phlx–2008–74 on the subject
line.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–28420 Filed 11–28–08; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58994; File No. SR–
NYSEArca–2008–125]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing of
Units of the United States Short Oil
Fund
November 21, 2008.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on November
to Secretary, Securities and Exchange
18, 2008, NYSE Arca, Inc. (‘‘NYSE
Commission, 100 F Street, NE.,
Arca’’ or ‘‘Exchange’’) filed with the
Washington, DC 20549–1090.
Securities and Exchange Commission
All submissions should refer to File
(‘‘Commission’’) the proposed rule
Number SR–Phlx–2008–74. This file
change as described in Items I and II
number should be included on the
subject line if e-mail is used. To help the below, which Items have been prepared
by NYSE Arca. The Commission is
Commission process and review your
publishing this notice to solicit
comments more efficiently, please use
only one method. The Commission will comments on the proposed rule change
post all comments on the Commission’s from interested persons.
Internet Web site (https://www.sec.gov/
I. Self-Regulatory Organization’s
rules/sro.shtml). Copies of the
Statement of the Terms of Substance of
submission, all subsequent
the Proposed Rule Change
amendments, all written statements
NYSE Arca, through its wholly-owned
with respect to the proposed rule
subsidiary NYSE Arca Equities, Inc.
change that are filed with the
(‘‘NYSE Arca Equities’’), proposes to list
Commission, and all written
and trade pursuant to NYSE Arca
communications relating to the
Equities Rule 8.300 units (‘‘Units’’) of
proposed rule change between the
the United States Short Oil Fund, LP
Commission and any person, other than (‘‘USSO’’ or ‘‘Partnership’’). The text of
those that may be withheld from the
the proposed rule change is available on
public in accordance with the
the Exchange’s Web site at https://
provisions of 5 U.S.C. 552, will be
www.nyse.com, at the Exchange’s
available for inspection and copying in
principal office, and at the
the Commission’s Public Reference
Commission’s Public Reference Room.
Room, 100 F Street, NE., Washington,
II. Self-Regulatory Organization’s
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Copies of such filing also will be
Change
available for inspection and copying at
the principal office of the Exchange. All
In its filing with the Commission, the
comments received will be posted
self-regulatory organization included
without change; the Commission does
statements concerning the purpose of,
not edit personal identifying
and basis for, the proposed rule change
information from submissions. You
and discussed any comments it received
should submit only information that
on the proposed rule change. The text
you wish to make available publicly. All of those statements may be examined at
submissions should refer to File No.
the places specified in Item IV below.
SR–Phlx–2008–74 and should be
The Exchange has prepared summaries,
submitted on or before December 22,
set forth in sections A, B, and C below,
2008.
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1 15
CFR 200.30–3(a)(12).
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2 17
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
Paper Comments
15 17
of the most significant parts of such
statements.
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00132
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1. Purpose
Under NYSE Arca Equities Rule
8.300, the Exchange may propose to list
and/or trade pursuant to unlisted
trading privileges (‘‘UTP’’) Partnership
Units.3 The Exchange proposes to list
and trade the Units pursuant to NYSE
Arca Equities Rule 8.300.4 The
Commission has previously approved
listing of similar limited partnerships on
the American Stock Exchange LLC
(‘‘Amex’’) (now known as NYSE
Alternext US LLC)5 and trading on the
Exchange pursuant to UTP.6 In addition,
the Commission has approved for listing
on the Exchange and, previously, on the
Amex fourteen funds of the ProShares
Trust II based on underlying commodity
or currency benchmarks that seek daily
investment results, before fees and
3 On May 25, 2006, the Commission approved
NYSE Arca Equities Rule 8.300, which sets forth the
rules related to listing and trading criteria for
Partnership Units. See Securities Exchange Act
Release No. 53875 (May 25, 2006), 71 FR 32164
(June 2, 2006) (SR–NYSEArca–2006–11) (approving
trading pursuant to UTP of Partnership Units of the
United States Oil Fund, LP). On July 11, 2007, the
Commission approved the Exchange’s proposal to
trade pursuant to UTP Partnership Units of the
United States Natural Gas Fund, LP. See Securities
Exchange Act Release No. 56042 (July 11, 2007), 72
FR 39118 (July 17, 2007) (SR–NYSEArca–2007–45).
4 USSO has filed with the Commission
Amendment No. 1 to Form S–1, dated September
29, 2008 (File No. 333–152386) (the ‘‘Registration
Statement’’). Unless otherwise noted, descriptions
herein relating to USSO are based on the
Registration Statement.
5 See Securities Exchange Act Release Nos. 53582
(March 31, 2006), 71 FR 17510 (April 6, 2006) (SR–
Amex–2005–127) (order approving Amex listing of
United States Oil Fund, LP); 56831 (November 21,
2007), 72 FR 67612 (November 29, 2007) (SR–
Amex–2007–98) (order approving Amex listing of
United States 12 Month Oil Fund, LP and United
States 12 Month Natural Gas Fund, LP); 55632
(April 13, 2007), 72 FR 19987 (April 20, 2007) (SR–
Amex–2006–112) (order approving Amex listing of
United States Natural Gas Fund, LP); 57188
(January 23, 2008), 73 FR 5607 (January 30, 2008)
(SR–Amex–2007–70) (order approving Amex listing
of United States Heating Oil Fund, LP and United
States Gasoline Fund, LP) (collectively, the ‘‘Amex
Filings’’).
6 See Securities Exchange Act Release No. 56832
(November 21, 2007), 72 FR 67328 (November 28,
2007) (SR–NYSEArca–2007–102) (order approving
UTP trading of United States 12 Month Oil Fund,
LP and United States 12 Month Natural Gas Fund,
LP); Securities Exchange Act Release No. 56042
(July 11, 2007), 72 FR 39118 (July 17, 2007) (SR–
NYSEArca–2007–45) (order approving UTP trading
of United States Natural Gas Fund, LP); Securities
Exchange Act Release No. 57294 (February 8, 2008),
73 FR 8917 (February 15, 2008) (SR–NYSEArca–
2007–78) (order approving UTP trading of United
States Heating Oil Fund, LP and United States
Gasoline Fund, LP) (collectively, with the orders
cited in note 3, supra, the ‘‘UTP Filings’’).
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expenses, that correspond to twice
(200%) the daily performance of the
underlying benchmark or twice the
inverse (¥200%) of the daily
performance of the underlying
benchmark.7
The net assets of USSO will consist
primarily of short positions in futures
contracts for crude oil, heating oil,
gasoline, natural gas and other
petroleum-based fuels that are traded on
the New York Mercantile Exchange
(‘‘NYMEX’’), ICE Futures or other U.S.
and foreign exchanges (collectively,
‘‘Futures Contracts’’). USSO may also
take short positions in other crude oilrelated investments such as cash-settled
options on Futures Contracts, forward
contracts for crude oil, and over-thecounter transactions that are based on
the price of crude oil and other
petroleum-based fuels, Futures
Contracts and indices based on the
foregoing (‘‘Other Crude Oil-Related
Investments’’). A short position is one in
which USSO will have sold the Futures
Contract or Other Crude-Oil Related
Investment (together with futures
contracts, ‘‘Crude Oil Interests’’) and
must buy it back or otherwise close out
the position in the future.8 As a result,
a drop in the market value of the
investment would lead to a potential
gain for USSO, while an increase in the
market value of the investment would
lead to a potential loss for USSO.
USSO will take short positions in
Crude Oil Interests to the fullest extent
possible without being leveraged or
unable to satisfy its current or potential
margin or collateral obligations with
respect to its short positions in Futures
Contracts and Other Crude Oil-Related
Investments. In pursuing this objective,
the primary focus of United States
Commodity Funds LLC (the ‘‘General
Partner’’) will be taking short positions
in Futures Contracts and the
management of investments in shortterm obligations of the United States of
two years or less (‘‘Treasuries’’), cash
7 See Securities Exchange Act Release No. 58161
(July 15, 2008), 73 FR 42380 (July 21, 2008) (SR–
Amex–2008–39) (approving listing of (1) ProShares
Ultra DJ–AIG Commodity, (2) ProShares UltraShort
DJ–AIG Commodity, (3) ProShares Ultra DJ–AIG
Agriculture, (4) ProShares UltraShort DJ–AIG
Agriculture, (5) ProShares Ultra DJ–AIG Crude Oil,
(6) ProShares UltraShort DJ–AIG Crude Oil, (7)
ProShares Ultra Gold, (8) ProShares UltraShort
Gold, (9) ProShares Ultra Silver, (10) ProShares
UltraShort Silver, (11) ProShares Ultra Euro, (12)
ProShares UltraShort Euro, (13) ProShares Ultra
Yen, and (14) ProShares UltraShort Yen (‘‘Funds’’));
Securities Exchange Act Release No. 58457
(September 3, 2008), 73 FR 52711 (September 10,
2008) (SR–NYSEArca–2008–91) (approving listing
of the Funds on the Exchange).
8 Terms relating to USSO referred to, but not
defined, herein are defined in the Registration
Statement.
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and/or cash equivalents for margining
purposes and as collateral.
USSO will comply with the
requirements of Rule 10A–3 9 under the
Securities Exchange Act of 1934
(‘‘Act’’) 10 as it applies to limited
partnerships.
USSO Investment Objective and Policies
The investment objective of USSO is
to have the changes in percentage terms
of the Units’ net asset value (‘‘NAV’’)
inversely reflect the changes in
percentage terms of the spot price of
light, sweet crude oil delivered to
Cushing, Oklahoma, as measured by the
changes in the price of the futures
contract on light, sweet crude oil as
traded on the NYMEX. The futures
contract employed is the near month
expiration contract, except when the
near month contract is within two
weeks of expiration, in which case the
futures contract will be the next month
contract to expire (the ‘‘Benchmark
Futures Contract’’), less USSO’s
expenses.11
As a specific benchmark, the General
Partner will endeavor to place USSO’s
trades in Futures Contracts and Other
Crude Oil-Related Investments and
otherwise manage USSO’s investments
so that ‘‘A’’ will be within plus/minus
10 percent of ‘‘B’’, where:
• A is the average daily change in
USSO’s NAV for any period of 30
successive valuation days, i.e., any day
as of which USSO calculates its NAV,
and
• B is the inverse of the average daily
change in the price of the Benchmark
Futures contract over the same period.
According to the Registration
Statement, an investment in the Units is
intended to allow both retail and
institutional investors to easily gain
inverse or negative exposure to the
crude oil market in a cost-effective
manner. The Units are also expected to
provide additional means for
diversifying an investor’s investments or
hedging exposure to changes in crude
oil prices.
According to the Registration
Statement, the General Partner believes
that market arbitrage opportunities will
cause changes in USSO’s Unit price on
the NYSE Arca to closely track changes
in USSO’s NAV.12 The General Partner
believes that changes in USSO’s NAV in
percentage terms will closely track the
changes in percentage terms in the
9 17
CFR 240.10A–3.
U.S.C. 78a.
11 The Benchmark Futures Contract will be
changed or ‘‘rolled’’ from the near month contract
to expire to the next month contract to expire
during one day.
12 See section entitled ‘‘Arbitrage,’’ infra.
10 15
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Benchmark Futures Contract. It is not
the intent of USSO to be operated in a
fashion such that its NAV will equal, in
dollar terms, the dollar price of spot
crude oil or any particular futures
contract based on crude oil.
A description of the petroleum-based
fuels market for light, sweet crude oil,
heating oil, natural gas and gasoline is
contained in the Registration Statement.
Structure and Regulation of USSO
USSO is a Delaware limited
partnership formed on June 30, 2008. It
is managed and controlled by the
General Partner, a single member
limited liability company formed in
Delaware on May 10, 2005, registered as
a commodity pool operator (‘‘CPO’’)
with the Commodity Futures Trading
Commission (‘‘CFTC’’) and a member of
the National Futures Association
(‘‘NFA’’). Prior to June 13, 2008, the
General Partner’s name was Victoria Bay
Asset Management, LLC. The General
Partner is not affiliated with a brokerdealer.
Clearing Broker. UBS Securities, LLC,
a CFTC registered futures commission
merchant, will act as clearing broker for
USSO. The clearing arrangements
between the clearing broker and USSO
generally are terminable by the clearing
broker once it has given USSO notice.
Upon termination, the General Partner
may be required to renegotiate or make
other arrangements for obtaining similar
services if USSO intends to continue
trading in Futures Contracts or Other
Crude Oil-Related Investments at its
present level of capacity.
Administrator and Custodian. Brown
Brothers Harriman & Co. is anticipated
to be the registrar and transfer agent for
the Units. It is also anticipated to be the
Custodian for USSO. In this capacity,
Brown Brothers Harriman & Co. will
hold USSO’s Treasuries, cash and cash
equivalents pursuant to a custodial
agreement. In addition, Brown Brothers
Harriman & Co. will perform certain
administrative and accounting services
for USSO and will prepare certain SEC
and CFTC reports on behalf of USSO.
Marketing Agent. USSO plans to
employ ALPS Distributors, Inc. as its
marketing agent. USSO, through its
marketing agent, will continuously offer
Creation Baskets to and redeem
Redemption Baskets from Authorized
Purchasers and will receive and process
creation and redemption orders from
Authorized Purchasers.
Investment Strategy of USSO
To achieve its investment objective,
USSO intends to maintain ‘‘short’’
positions in Futures Contracts and
Other Crude Oil-Related Investments in
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which it invests. USSO seeks to have
the percent changes in its Units’ NAV
inversely track percentage changes in
the price of light, sweet crude oil. For
that reason, the net assets of USSO will
consist primarily of short positions in
futures contracts for crude oil, heating
oil, gasoline, natural gas and other
petroleum-based fuels that are traded on
the NYMEX, ICE Futures or other U.S.
or foreign exchanges. USSO may also
take short positions in other crude oilrelated investments such as cash-settled
options on Futures Contracts and
forward contracts for crude oil, and
over-the-counter transactions that are
based on the price of crude oil and other
petroleum-based fuels, Futures
Contracts and indices based on the
foregoing.
In addition to the Futures Contracts
and options on the Futures Contracts,
there also exists an active nonexchange-traded market in derivatives
tied to crude oil. These derivatives
transactions (also known as over-thecounter contracts) are usually entered
into between two parties. Unlike most of
the exchange-traded Futures Contracts
or exchange-traded options on the
Futures Contracts, each party to such
contract bears the credit risk that the
other party may not be able to perform
its obligations under its contract.
Some crude oil-based derivatives
transactions contain fairly generic terms
and conditions and are available from a
wide range of participants. Other crude
oil-based derivatives have highly
customized terms and conditions and
are not as widely available. Many of
these over-the-counter contracts are
cash-settled forwards for the future
delivery of crude oil- or petroleumbased fuels that have terms similar to
the Futures Contracts. Others take the
form of ‘‘swaps’’ in which the two
parties exchange cash flows based on
pre-determined formulas tied to the
crude oil spot price, forward crude oil
price, the Benchmark Futures Contract
price, or other crude oil futures contract
price. USSO anticipates that the use of
Other Crude Oil-Related Investments
together with its investments in Futures
Contracts will produce price and total
return results that closely track the
investment goals of USSO.
Impact of Accountability Levels and
Position Limits
According to the Registration
Statement, U.S. designated contract
markets such as NYMEX have
established accountability levels and
position limits on the maximum net
long or net short futures contracts in
commodity interests that any person or
group of persons under common trading
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control (other than as a hedge, which an
investment in USSO is not) may hold,
own or control. The current
accountability level for investments in
Futures Contracts is not a fixed ceiling,
but rather a threshold above which
NYMEX may exercise greater scrutiny
and control over an investor.
In addition to accountability levels
and position limits, NYMEX also sets
daily price fluctuation limits on Futures
Contracts. The daily price fluctuation
limit establishes the maximum amount
that the price of futures contracts may
vary either up or down from the
previous day’s settlement price. Once
the daily price fluctuation limit has
been reached in a particular Futures
Contract, no trades may be made at a
price beyond that limit.
These limits may potentially cause a
tracking error between the price of the
Units and the price of the Benchmark
Futures Contract. This may in turn
prevent an investor from being able to
effectively use USSO as a way to hedge
against crude oil-related losses or as a
way to indirectly take short positions in
crude oil.
Investment Procedures
According to the Registration
Statement, USSO anticipates that the
use of Futures Contracts, together with
Other Crude Oil-Related Investments, as
necessary, will produce price and total
return results that closely track the
investment goals of USSO.
Counterparty Procedures. To protect
itself from the credit risk that arises in
connection with taking short positions
in Other Crude Oil-Related Investments,
USSO will enter into agreements with
each counterparty that provide for the
netting of its overall exposure to its
counterparty. The General Partner will
assess or review, as appropriate, the
creditworthiness of each potential or
existing counterparty to an over-thecounter contract pursuant to guidelines
approved by the General Partner’s Board
of Directors. Furthermore, the General
Partner on behalf of USSO will only
enter into over-the-counter contracts
with (a) members of the Federal Reserve
System or foreign banks with branches
regulated by the Federal Reserve Board;
(b) primary dealers in U.S. government
securities; (c) broker-dealers; (d)
commodities futures merchants; or (e)
affiliates of the foregoing. Existing
counterparties will also be reviewed
periodically by the General Partner.
Cash, Cash Equivalents, and
Treasuries. USSO will also invest in
cash, cash equivalents, and Treasuries
with a remaining maturity of two years
or less. The cash, cash equivalents, and
Treasuries are to be used to meet
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USSO’s current or potential margin or
collateral requirements with respect to
its short positions in Futures Contracts
and Other Crude Oil-Related
Investments. USSO plans to reinvest the
earned interest income, hold it in cash,
or use it to pay its expenses. If USSO
reinvests the earned interest income, it
will make investments that are
consistent with its investment
objectives.
Creation and Redemption of Units
USSO will continuously offer
Creation Baskets consisting of 100,000
Units to Authorized Purchasers through
the marketing agent. USSO will create
and redeem Units only in one or more
Creation Baskets or Redemption
Baskets. Only Authorized Purchasers
may purchase or redeem Creation
Baskets or Redemption Baskets. The
creation and redemption of baskets will
only be made in exchange for delivery
to USSO or the distribution by USSO of
the amount of Treasuries and any cash
represented by the baskets being created
or redeemed. The amount will be based
on the combined NAV of the number of
Units included in the baskets being
created or redeemed determined as of
4:00 p.m. Eastern Time (‘‘E.T.’’) on the
day the order to create or redeem
baskets is properly received.
Calculation of Partnership NAV. The
Administrator will calculate NAV by
taking the current market value of
USSO’s total assets and subtracting any
liabilities. The Administrator will
calculate NAV once each trading day
and the NAV for a particular trading day
will be released after 4 p.m. E.T. The
Administrator will calculate NAV as of
the earlier of the close of the New York
Stock Exchange or 4 p.m. E.T. USSO
will use the NYMEX closing price
(determined at the earlier of the close of
that Exchange or 2:30 p.m. E.T.) for the
contracts held on NYMEX, but will
calculate or determine the value of all
other USSO investments as of the earlier
of the close of the NYSE Arca Core
Trading Session or 4 p.m. E.T.
Calculation of Basket Amount. USSO
will create and redeem Units only in
blocks of 100,000 Units called Creation
Baskets and Redemption Baskets,
respectively. The price of each Unit
offered in Creation Baskets on any day
will be the total NAV of USSO
calculated as of the close of the New
York Stock Exchange on that day
divided by the number of issued and
outstanding Units.
The creation and redemption of
baskets will only be made in exchange
for delivery to USSO or the distribution
by USSO of the amount of Treasuries
and any cash represented by the baskets
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being created or redeemed, the amount
of which will be based on the combined
NAV of the number of Units included in
the baskets being created or redeemed as
of 4:00 p.m. E.T. on the day the order
to create or redeem baskets is properly
received. Additional procedures relating
to the creation and redemption of Units
are described in the Registration
Statement.
Arbitrage
According to the Registration
Statement, investors and market
professionals will be able, through out
the trading day, to compare the market
price of USSO and the Indicative
Partnership Value (‘‘IPV’’), as discussed
below. If the market price of USSO
Units diverges significantly from the
IPV, market professionals will have an
incentive to execute arbitrage trades.
Such arbitrage trades can tighten the
tracking between the market price of
USSO and the IPV and thus can be
beneficial to all market participants. In
addition, quotation and last-sale
information regarding the Units will be
disseminated through the facilities of
the Consolidated Tape Association.
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Dissemination and Availability of
Information
Underlying Spot Price and Price of
Futures Contracts. The spot price of
light, sweet crude oil delivered to
Cushing, Oklahoma, and the applicable
Futures Contracts are the underlying
benchmark investment, commodity or
asset, as applicable, for purposes of
NYSE Arca Equities Rule
8.300(d)(2)(ii).13
The NYMEX disseminates price
information on the Futures Contracts
traded on the NYMEX on a real-time
basis during normal trading hours on
the NYMEX from 10 a.m. E.T. to 2:30
p.m. E.T.
Portfolio Disclosure. USSO’s total
portfolio composition will be disclosed
each business day that the NYSE Arca
is open for trading on USSO’s Web site
at https://www.unitedstatesshortoil
fund.com. The Web site disclosure of
portfolio holdings will be made daily
and will include, as applicable, the
name and value of each Crude Oil
Interest, the specific types of Other
Crude Oil-Related Investments and
characteristics of such Other Crude OilRelated Investments, Treasuries, and the
13 NYSE Arca Equities Rule 8.300(d)(2)(ii)
provides that NYSE Arca Equities will consider
removing from listing Partnership Units if the value
of the underlying benchmark investment,
commodity or asset is no longer calculated or
available on at a least a 15-second delayed basis or
NYSE Arca Equities stops providing a hyperlink on
its Web site to any such investment, commodity or
asset value.
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amount of cash and cash equivalents
held in USSO’s portfolio. USSO’s Web
site is publicly accessible at no charge.
Indicative Partnership Value. In order
to provide updated information relating
to USSO for use by investors and market
professionals, NYSE Arca will calculate
and disseminate during the trading day
an updated IPV, as described below.
The IPV will be calculated by using the
prior day’s closing NAV per Unit of
USSO as a base and updating that value
throughout the trading day to reflect
changes in the most recently reported
trade price for the active Futures
Contract on NYMEX. The prices
reported for the active Futures Contract
month will be adjusted based on the
prior day’s spread differential between
settlement values for that contract and
the spot month contract. In the event
that the spot month contract is also the
active contract, the last sale price for the
active contract will not be adjusted. The
IPV disseminated during the NYSE Arca
Core Trading Session should not be
viewed as an actual real time update of
the NAV, because NAV is calculated
only once at the end of each trading day.
The IPV will be disseminated on a per
Unit basis every 15 seconds during the
Core Trading Session of NYSE Arca
from 9:30 a.m. E.T. to 4 p.m. E.T. The
normal trading hours of NYMEX are 10
a.m. E.T. to 2:30 p.m. E.T. This means
that there will be a gap in time at the
beginning and the end of each day
during which USSO Units will be
traded on the NYSE Arca, but real-time
NYMEX trading prices for futures
contracts traded on the NYMEX will not
be available. As a result, during those
gaps there will be no update to the IPV.
The IPV will not be updated during the
Exchange’s Opening Trading Session
from 4 a.m. to 9:30 a.m., during that part
of the Exchange’s Core Trading Session
when NYMEX is not normally open for
trading (specifically, 9:30 a.m. to 10 a.m.
E.T. and 2:30 p.m. to 4 p.m. E.T.), and
during the Late Trading Session from 4
p.m. to 8 p.m. E.T.
The NYSE Arca will disseminate the
IPV through the facilities of CTA/CQ
High Speed Lines. In addition, the IPV
will be published on the NYSE Arca’s
Web site and will be available through
on-line information services such as
Bloomberg and Reuters. Dissemination
of the IPV provides additional
information that is not otherwise
available to the public and is useful to
investors and market professionals in
connection with the trading of the Units
on the NYSE Arca.
Trading Rules
The Exchange deems the Units to be
equity securities, thus rendering trading
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Frm 00135
Fmt 4703
Sfmt 4703
72895
in the Units subject to the Exchange’s
existing rules governing the trading of
equity securities. The Units will trade
on the NYSE Arca Marketplace from 4
a.m. to 8 p.m. E.T. The Exchange has
appropriate rules to facilitate
transactions in the Units during all
trading sessions. The minimum trading
increment for the Units on the Exchange
will be $0.01.
NYSE Arca Equities Rule 8.300(e) sets
forth certain restrictions on ETP Holders
acting as registered Market Makers in
Partnership Units to facilitate
surveillance. NYSE Arca Equities Rule
8.300(e)(2)–(3) requires that the ETP
Holder acting as a registered Market
Maker in Partnership Units provide the
Exchange with necessary information
relating to its trading in the underlying
asset or commodity, related futures or
options on futures, or any other related
derivatives. NYSE Arca Equities Rule
8.300(e)(4) prohibits the ETP Holder
acting as a registered Market Maker in
Partnership Units from using any
material nonpublic information received
from any person associated with an ETP
Holder or employee of such person
regarding trading by such person or
employee in the underlying asset or
commodity, related futures or options
on futures or any other related
derivative (including the Partnership
Units). In addition, NYSE Arca Equities
Rule 8.300(e)(1) prohibits the ETP
Holder acting as a registered Market
Maker in Partnership Units from being
affiliated with a market maker in the
underlying asset or commodity, related
futures or options on futures or any
other related derivative unless adequate
information barriers are in place, as
provided in NYSE Arca Equities Rule
7.26.
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Units.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Units inadvisable. These may
include: (1) The extent to which trading
is not occurring in the underlying
Futures Contracts, or (2) whether other
unusual conditions or circumstances
detrimental to the maintenance of a fair
and orderly market are present. In
addition, trading in the Units could be
halted pursuant to the Exchange’s
‘‘circuit breaker’’ rule.14 If the value of
the underlying benchmark investment,
commodity or asset or IPV applicable to
the Units is not being disseminated as
required, the Exchange may halt trading
in the Units during the day on which
14 See
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NYSE Arca Equities Rule 7.12.
01DEN1
72896
Federal Register / Vol. 73, No. 231 / Monday, December 1, 2008 / Notices
respect to those contracts without any
further action being required on the part
of the Exchange. A list of ISG members
is available at https://www.isgportal.org.
In addition, to the extent that the
Partnership invests in Futures Contracts
traded on other exchanges, not more
than 10% of the weight of the
Partnership assets in the aggregate shall
consist of Crude Oil Interests whose
principal trading market is not a
member of ISG or is a market with
which the Exchange does not have a
comprehensive surveillance sharing
agreement.
The Exchange also has a general
policy prohibiting the distribution of
material, non-public information by its
employees.
Surveillance
rwilkins on PROD1PC63 with NOTICES
the interruption first occurs. If such
interruption persists past the trading
day in which it occurred, the Exchange
will halt trading no later than the
beginning of the trading day following
the interruption.15 Under Rule
7.34(a)(5), if the Exchange becomes
aware that the NAV for the Units is not
being disseminated to all market
participants at the same time, it will halt
trading in the Units on the Exchange
until such time as the NAV is available
to all market participants. In addition, if
the portfolio composition applicable to
the Units, as disseminated on the Web
site for the Units, is not disseminated to
all market participants at the same time,
the Exchange will halt trading in the
affected Units.
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an Information Bulletin
(‘‘Bulletin’’) of the special
characteristics and risks associated with
trading the Units. Specifically, the
Bulletin will discuss the following: (1)
The risks involved in trading the Units
during the Opening and Late Trading
Sessions when an updated IPV will not
be calculated or publicly disseminated;
(2) the risks involved in trading the
Units during the part of the Core
Trading Session when an updated IPV
will not be available; 16 (3) the
procedures for purchases and
redemptions of Units (and that Units are
not individually redeemable); (4) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Units; (5) how information
regarding the IPV is disseminated; (6)
the requirement that ETP Holders
deliver a prospectus to investors
purchasing newly issued Units prior to
or concurrently with the confirmation of
a transaction; and (7) trading
information.
In addition, the Bulletin will
reference that each Partnership is
subject to various fees and expenses
described in the relevant Registration
Statement.
The Bulletin will also reference the
fact that there is no regulated source of
last sale information regarding physical
commodities, that the Commission has
no jurisdiction over the trading of crude
oil, heating oil, gasoline, natural gas or
other petroleum-based fuels, and that
the CFTC has regulatory jurisdiction
The Exchange intends to utilize its
existing surveillance procedures
applicable to derivative products,
including Partnership Units, to monitor
trading in the Units. The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Units in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws.
The Exchange’s current trading
surveillances focus on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations. The Exchange is able
to obtain information regarding trading
in the Units, the applicable physical
commodities included in, or options,
futures or options on futures on, or any
other derivatives based on such
commodities, through ETP Holders, in
connection with such ETP Holders’
proprietary or customer trades which
they effect on any relevant market. With
regard to the Futures Contracts, the
Exchange can obtain market
surveillance information, including
customer identity information, with
respect to transactions occurring on
NYMEX and ICE Futures pursuant to its
comprehensive information sharing
agreements with each of those
exchanges. All of the other trading
venues on which current Futures
Contracts are traded are members of the
Intermarket Surveillance Group (‘‘ISG’’)
and the Exchange therefore has access to
all relevant trading information with
15 E-mail
from Michael Cavalier, Chief Counsel,
NYSE Euronext, to Edward Cho, Special Counsel,
Division of Trading and Markets, Commission,
dated November 20, 2008.
VerDate Aug<31>2005
16:47 Nov 28, 2008
Jkt 217001
16 As noted above, the IPV will not be updated
during that part of the Exchange’s Core Trading
Session when NYMEX is not normally open for
trading (specifically, 9:30 a.m. to 10 a.m. E.T. and
2:30 p.m. to 4 p.m. E.T.).
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Frm 00136
Fmt 4703
Sfmt 4703
over the trading of futures contracts
traded on U.S. exchanges and related
options.
The Bulletin will also discuss any
exemptive, no-action and interpretive
relief granted by the Commission from
any rules under the Act.
The Bulletin will also disclose that
the NAV for the Units will be calculated
after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The proposed rule change is
consistent with section 6(b) of the Act,17
in general, and furthers the objectives of
section 6(b)(5),18 in particular, in that it
is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system. The Exchange believes that the
proposed rule change will allow the
listing of the Units on the Exchange,
which the Exchange believes will
benefit of investors and the marketplace.
In addition, the listing and trading
criteria set forth in Rule 8.300 are
intended to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve the proposed
rule change; or
17 15
18 15
E:\FR\FM\01DEN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
01DEN1
Federal Register / Vol. 73, No. 231 / Monday, December 1, 2008 / Notices
72897
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
The Exchange has requested
accelerated approval of this proposed
rule change prior to the 30th day after
the date of publication of the notice
thereof in the Federal Register. The
Commission has determined that a 15day comment period is appropriate in
this case.
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2008–125 and
should be submitted on or before
December 16, 2008.
Percent
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
BILLING CODE 8011–01–P
rwilkins on PROD1PC63 with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2008–125 on
the subject line.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–28419 Filed 11–28–08; 8:45 am]
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #11543 and #11544]
North Carolina Disaster #NC–00018
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
VerDate Aug<31>2005
16:47 Nov 28, 2008
Jkt 217001
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Fmt 4703
Sfmt 4703
2.687
7.750
4.000
4.500
4.000
The number assigned to this disaster
for physical damage is 11543 C and for
economic injury is 11544 0.
The State which received an EIDL
Declaration # is North Carolina.
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
This is a notice of an
Administrative declaration of a disaster
for the State of North Carolina dated 11/
21/2008.
Incident: Severe Storms and
Tornadoes.
Paper Comments
Incident Period: 11/14/2008 through
11/15/2008.
• Send paper comments in triplicate
Effective Date: 11/21/2008.
to Secretary, Securities and Exchange
Physical Loan Application Deadline
Commission, 100 F Street, NE.,
Date: 01/21/2009.
Washington, DC 20549–1090.
All submissions should refer to File
Economic Injury (EIDL) Loan
Number SR-NYSEArca-2008–125. This
Application Deadline Date: 08/21/2009.
file number should be included on the
ADDRESSES: Submit completed loan
subject line if e-mail is used. To help the applications to: U.S. Small Business
Commission process and review your
Administration, Processing and
comments more efficiently, please use
Disbursement Center, 14925 Kingsport
only one method. The Commission will Road, Fort Worth, TX 76155.
post all comments on the Commission’s FOR FURTHER INFORMATION CONTACT: A.
Internet Web site (https://www.sec.gov/
Escobar, Office of Disaster Assistance,
rules/sro.shtml). Copies of the
U.S. Small Business Administration,
submission, all subsequent
409 3rd Street, SW., Suite 6050,
amendments, all written statements
Washington, DC 20416.
with respect to the proposed rule
SUPPLEMENTARY INFORMATION: Notice is
change that are filed with the
hereby given that as a result of the
Commission, and all written
Administrator’s disaster declaration,
communications relating to the
applications for disaster loans may be
proposed rule change between the
filed at the address listed above or other
Commission and any person, other than
locally announced locations.
those that may be withheld from the
The following areas have been
public in accordance with the
determined to be adversely affected by
provisions of 5 U.S.C. 552, will be
the disaster:
available for inspection and copying in
Primary Counties: Johnston.
the Commission’s Public Reference
Contiguous Counties:
Room, 100 F Street, NE., Washington,
North Carolina: Franklin, Harnett,
DC 20549, on official business days
Nash, Sampson, Wake, Wayne,
between the hours of 10 a.m. and 3 p.m.
Wilson.
Copies of the filing also will be available
The Interest Rates are:
for inspection and copying at the
principal office of the Exchange. All
Percent
comments received will be posted
without change; the Commission does
Homeowners With Credit Availnot edit personal identifying
able Elsewhere: ........................
5.375
information from submissions. You
19 17 CFR 200.30–3(a)(12).
should submit only information that
SUMMARY:
Homeowners
Without
Credit
Available Elsewhere: .................
Businesses With Credit Available
Elsewhere: ................................
Businesses & Small Agricultural
Cooperatives Without Credit
Available Elsewhere: .................
Other (Including Non-Profit Organizations) With Credit Available
Elsewhere: ................................
Businesses and Non-Profit Organizations Without Credit Available Elsewhere .........................
Dated: November 21, 2008.
Sandy K. Baruah,
Acting Administrator.
[FR Doc. E8–28430 Filed 11–28–08; 8:45 am]
BILLING CODE 8025–01–P
DEPARTMENT OF STATE
[Public Notice 6435]
U.S. Department of State Advisory
Committee on Private International
Law: Working Group on Conflicts of
Law
A Working Group on Conflicts of Law
has been established under the
Department of State Advisory
Committee on Private International Law
to consider issues relating to choice of
law, applicable law and dispute
resolution. This is not a meeting of the
full Advisory Committee.
In the context of the Seventh InterAmerican Specialized Conference on
Private International Law (CIDIP–VII),
the Committee on Juridical and Political
Affairs of the Permanent Council of the
Organization of American States (OAS)
is carrying out work on consumer rights
as part of its program on private law.
Three proposals have been put forward:
a Brazilian draft convention on
applicable law, a Canadian draft model
law on jurisdiction and applicable law,
and a United States proposal in the form
of legislative guidelines and model
laws/rules to promote consumer redress
mechanisms such as small claims
tribunals, collective procedures, on-line
dispute resolution, and government
actions.
The United States is also considering
whether to pursue ratification of the
Inter-American Convention on the Law
Applicable to International Contracts
E:\FR\FM\01DEN1.SGM
01DEN1
]]>Agencies
[Federal Register Volume 73, Number 231 (Monday, December 1, 2008)]
[Notices]
[Pages 72892-72897]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-28419]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58994; File No. SR-NYSEArca-2008-125]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing of Units of the United
States Short Oil Fund
November 21, 2008.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 18, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by NYSE Arca. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NYSE Arca, through its wholly-owned subsidiary NYSE Arca Equities,
Inc. (``NYSE Arca Equities''), proposes to list and trade pursuant to
NYSE Arca Equities Rule 8.300 units (``Units'') of the United States
Short Oil Fund, LP (``USSO'' or ``Partnership''). The text of the
proposed rule change is available on the Exchange's Web site at https://www.nyse.com, at the Exchange's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under NYSE Arca Equities Rule 8.300, the Exchange may propose to
list and/or trade pursuant to unlisted trading privileges (``UTP'')
Partnership Units.\3\ The Exchange proposes to list and trade the Units
pursuant to NYSE Arca Equities Rule 8.300.\4\ The Commission has
previously approved listing of similar limited partnerships on the
American Stock Exchange LLC (``Amex'') (now known as NYSE Alternext US
LLC)\5\ and trading on the Exchange pursuant to UTP.\6\ In addition,
the Commission has approved for listing on the Exchange and,
previously, on the Amex fourteen funds of the ProShares Trust II based
on underlying commodity or currency benchmarks that seek daily
investment results, before fees and
[[Page 72893]]
expenses, that correspond to twice (200%) the daily performance of the
underlying benchmark or twice the inverse (-200%) of the daily
performance of the underlying benchmark.\7\
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\3\ On May 25, 2006, the Commission approved NYSE Arca Equities
Rule 8.300, which sets forth the rules related to listing and
trading criteria for Partnership Units. See Securities Exchange Act
Release No. 53875 (May 25, 2006), 71 FR 32164 (June 2, 2006) (SR-
NYSEArca-2006-11) (approving trading pursuant to UTP of Partnership
Units of the United States Oil Fund, LP). On July 11, 2007, the
Commission approved the Exchange's proposal to trade pursuant to UTP
Partnership Units of the United States Natural Gas Fund, LP. See
Securities Exchange Act Release No. 56042 (July 11, 2007), 72 FR
39118 (July 17, 2007) (SR-NYSEArca-2007-45).
\4\ USSO has filed with the Commission Amendment No. 1 to Form
S-1, dated September 29, 2008 (File No. 333-152386) (the
``Registration Statement''). Unless otherwise noted, descriptions
herein relating to USSO are based on the Registration Statement.
\5\ See Securities Exchange Act Release Nos. 53582 (March 31,
2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127) (order
approving Amex listing of United States Oil Fund, LP); 56831
(November 21, 2007), 72 FR 67612 (November 29, 2007) (SR-Amex-2007-
98) (order approving Amex listing of United States 12 Month Oil
Fund, LP and United States 12 Month Natural Gas Fund, LP); 55632
(April 13, 2007), 72 FR 19987 (April 20, 2007) (SR-Amex-2006-112)
(order approving Amex listing of United States Natural Gas Fund,
LP); 57188 (January 23, 2008), 73 FR 5607 (January 30, 2008) (SR-
Amex-2007-70) (order approving Amex listing of United States Heating
Oil Fund, LP and United States Gasoline Fund, LP) (collectively, the
``Amex Filings'').
\6\ See Securities Exchange Act Release No. 56832 (November 21,
2007), 72 FR 67328 (November 28, 2007) (SR-NYSEArca-2007-102) (order
approving UTP trading of United States 12 Month Oil Fund, LP and
United States 12 Month Natural Gas Fund, LP); Securities Exchange
Act Release No. 56042 (July 11, 2007), 72 FR 39118 (July 17, 2007)
(SR-NYSEArca-2007-45) (order approving UTP trading of United States
Natural Gas Fund, LP); Securities Exchange Act Release No. 57294
(February 8, 2008), 73 FR 8917 (February 15, 2008) (SR-NYSEArca-
2007-78) (order approving UTP trading of United States Heating Oil
Fund, LP and United States Gasoline Fund, LP) (collectively, with
the orders cited in note 3, supra, the ``UTP Filings'').
\7\ See Securities Exchange Act Release No. 58161 (July 15,
2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (approving
listing of (1) ProShares Ultra DJ-AIG Commodity, (2) ProShares
UltraShort DJ-AIG Commodity, (3) ProShares Ultra DJ-AIG Agriculture,
(4) ProShares UltraShort DJ-AIG Agriculture, (5) ProShares Ultra DJ-
AIG Crude Oil, (6) ProShares UltraShort DJ-AIG Crude Oil, (7)
ProShares Ultra Gold, (8) ProShares UltraShort Gold, (9) ProShares
Ultra Silver, (10) ProShares UltraShort Silver, (11) ProShares Ultra
Euro, (12) ProShares UltraShort Euro, (13) ProShares Ultra Yen, and
(14) ProShares UltraShort Yen (``Funds'')); Securities Exchange Act
Release No. 58457 (September 3, 2008), 73 FR 52711 (September 10,
2008) (SR-NYSEArca-2008-91) (approving listing of the Funds on the
Exchange).
---------------------------------------------------------------------------
The net assets of USSO will consist primarily of short positions in
futures contracts for crude oil, heating oil, gasoline, natural gas and
other petroleum-based fuels that are traded on the New York Mercantile
Exchange (``NYMEX''), ICE Futures or other U.S. and foreign exchanges
(collectively, ``Futures Contracts''). USSO may also take short
positions in other crude oil-related investments such as cash-settled
options on Futures Contracts, forward contracts for crude oil, and
over-the-counter transactions that are based on the price of crude oil
and other petroleum-based fuels, Futures Contracts and indices based on
the foregoing (``Other Crude Oil-Related Investments''). A short
position is one in which USSO will have sold the Futures Contract or
Other Crude-Oil Related Investment (together with futures contracts,
``Crude Oil Interests'') and must buy it back or otherwise close out
the position in the future.\8\ As a result, a drop in the market value
of the investment would lead to a potential gain for USSO, while an
increase in the market value of the investment would lead to a
potential loss for USSO.
---------------------------------------------------------------------------
\8\ Terms relating to USSO referred to, but not defined, herein
are defined in the Registration Statement.
---------------------------------------------------------------------------
USSO will take short positions in Crude Oil Interests to the
fullest extent possible without being leveraged or unable to satisfy
its current or potential margin or collateral obligations with respect
to its short positions in Futures Contracts and Other Crude Oil-Related
Investments. In pursuing this objective, the primary focus of United
States Commodity Funds LLC (the ``General Partner'') will be taking
short positions in Futures Contracts and the management of investments
in short-term obligations of the United States of two years or less
(``Treasuries''), cash and/or cash equivalents for margining purposes
and as collateral.
USSO will comply with the requirements of Rule 10A-3 \9\ under the
Securities Exchange Act of 1934 (``Act'') \10\ as it applies to limited
partnerships.
---------------------------------------------------------------------------
\9\ 17 CFR 240.10A-3.
\10\ 15 U.S.C. 78a.
---------------------------------------------------------------------------
USSO Investment Objective and Policies
The investment objective of USSO is to have the changes in
percentage terms of the Units' net asset value (``NAV'') inversely
reflect the changes in percentage terms of the spot price of light,
sweet crude oil delivered to Cushing, Oklahoma, as measured by the
changes in the price of the futures contract on light, sweet crude oil
as traded on the NYMEX. The futures contract employed is the near month
expiration contract, except when the near month contract is within two
weeks of expiration, in which case the futures contract will be the
next month contract to expire (the ``Benchmark Futures Contract''),
less USSO's expenses.\11\
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\11\ The Benchmark Futures Contract will be changed or
``rolled'' from the near month contract to expire to the next month
contract to expire during one day.
---------------------------------------------------------------------------
As a specific benchmark, the General Partner will endeavor to place
USSO's trades in Futures Contracts and Other Crude Oil-Related
Investments and otherwise manage USSO's investments so that ``A'' will
be within plus/minus 10 percent of ``B'', where:
A is the average daily change in USSO's NAV for any period
of 30 successive valuation days, i.e., any day as of which USSO
calculates its NAV, and
B is the inverse of the average daily change in the price
of the Benchmark Futures contract over the same period.
According to the Registration Statement, an investment in the Units
is intended to allow both retail and institutional investors to easily
gain inverse or negative exposure to the crude oil market in a cost-
effective manner. The Units are also expected to provide additional
means for diversifying an investor's investments or hedging exposure to
changes in crude oil prices.
According to the Registration Statement, the General Partner
believes that market arbitrage opportunities will cause changes in
USSO's Unit price on the NYSE Arca to closely track changes in USSO's
NAV.\12\ The General Partner believes that changes in USSO's NAV in
percentage terms will closely track the changes in percentage terms in
the Benchmark Futures Contract. It is not the intent of USSO to be
operated in a fashion such that its NAV will equal, in dollar terms,
the dollar price of spot crude oil or any particular futures contract
based on crude oil.
---------------------------------------------------------------------------
\12\ See section entitled ``Arbitrage,'' infra.
---------------------------------------------------------------------------
A description of the petroleum-based fuels market for light, sweet
crude oil, heating oil, natural gas and gasoline is contained in the
Registration Statement.
Structure and Regulation of USSO
USSO is a Delaware limited partnership formed on June 30, 2008. It
is managed and controlled by the General Partner, a single member
limited liability company formed in Delaware on May 10, 2005,
registered as a commodity pool operator (``CPO'') with the Commodity
Futures Trading Commission (``CFTC'') and a member of the National
Futures Association (``NFA''). Prior to June 13, 2008, the General
Partner's name was Victoria Bay Asset Management, LLC. The General
Partner is not affiliated with a broker-dealer.
Clearing Broker. UBS Securities, LLC, a CFTC registered futures
commission merchant, will act as clearing broker for USSO. The clearing
arrangements between the clearing broker and USSO generally are
terminable by the clearing broker once it has given USSO notice. Upon
termination, the General Partner may be required to renegotiate or make
other arrangements for obtaining similar services if USSO intends to
continue trading in Futures Contracts or Other Crude Oil-Related
Investments at its present level of capacity.
Administrator and Custodian. Brown Brothers Harriman & Co. is
anticipated to be the registrar and transfer agent for the Units. It is
also anticipated to be the Custodian for USSO. In this capacity, Brown
Brothers Harriman & Co. will hold USSO's Treasuries, cash and cash
equivalents pursuant to a custodial agreement. In addition, Brown
Brothers Harriman & Co. will perform certain administrative and
accounting services for USSO and will prepare certain SEC and CFTC
reports on behalf of USSO.
Marketing Agent. USSO plans to employ ALPS Distributors, Inc. as
its marketing agent. USSO, through its marketing agent, will
continuously offer Creation Baskets to and redeem Redemption Baskets
from Authorized Purchasers and will receive and process creation and
redemption orders from Authorized Purchasers.
Investment Strategy of USSO
To achieve its investment objective, USSO intends to maintain
``short'' positions in Futures Contracts and Other Crude Oil-Related
Investments in
[[Page 72894]]
which it invests. USSO seeks to have the percent changes in its Units'
NAV inversely track percentage changes in the price of light, sweet
crude oil. For that reason, the net assets of USSO will consist
primarily of short positions in futures contracts for crude oil,
heating oil, gasoline, natural gas and other petroleum-based fuels that
are traded on the NYMEX, ICE Futures or other U.S. or foreign
exchanges. USSO may also take short positions in other crude oil-
related investments such as cash-settled options on Futures Contracts
and forward contracts for crude oil, and over-the-counter transactions
that are based on the price of crude oil and other petroleum-based
fuels, Futures Contracts and indices based on the foregoing.
In addition to the Futures Contracts and options on the Futures
Contracts, there also exists an active non-exchange-traded market in
derivatives tied to crude oil. These derivatives transactions (also
known as over-the-counter contracts) are usually entered into between
two parties. Unlike most of the exchange-traded Futures Contracts or
exchange-traded options on the Futures Contracts, each party to such
contract bears the credit risk that the other party may not be able to
perform its obligations under its contract.
Some crude oil-based derivatives transactions contain fairly
generic terms and conditions and are available from a wide range of
participants. Other crude oil-based derivatives have highly customized
terms and conditions and are not as widely available. Many of these
over-the-counter contracts are cash-settled forwards for the future
delivery of crude oil- or petroleum-based fuels that have terms similar
to the Futures Contracts. Others take the form of ``swaps'' in which
the two parties exchange cash flows based on pre-determined formulas
tied to the crude oil spot price, forward crude oil price, the
Benchmark Futures Contract price, or other crude oil futures contract
price. USSO anticipates that the use of Other Crude Oil-Related
Investments together with its investments in Futures Contracts will
produce price and total return results that closely track the
investment goals of USSO.
Impact of Accountability Levels and Position Limits
According to the Registration Statement, U.S. designated contract
markets such as NYMEX have established accountability levels and
position limits on the maximum net long or net short futures contracts
in commodity interests that any person or group of persons under common
trading control (other than as a hedge, which an investment in USSO is
not) may hold, own or control. The current accountability level for
investments in Futures Contracts is not a fixed ceiling, but rather a
threshold above which NYMEX may exercise greater scrutiny and control
over an investor.
In addition to accountability levels and position limits, NYMEX
also sets daily price fluctuation limits on Futures Contracts. The
daily price fluctuation limit establishes the maximum amount that the
price of futures contracts may vary either up or down from the previous
day's settlement price. Once the daily price fluctuation limit has been
reached in a particular Futures Contract, no trades may be made at a
price beyond that limit.
These limits may potentially cause a tracking error between the
price of the Units and the price of the Benchmark Futures Contract.
This may in turn prevent an investor from being able to effectively use
USSO as a way to hedge against crude oil-related losses or as a way to
indirectly take short positions in crude oil.
Investment Procedures
According to the Registration Statement, USSO anticipates that the
use of Futures Contracts, together with Other Crude Oil-Related
Investments, as necessary, will produce price and total return results
that closely track the investment goals of USSO.
Counterparty Procedures. To protect itself from the credit risk
that arises in connection with taking short positions in Other Crude
Oil-Related Investments, USSO will enter into agreements with each
counterparty that provide for the netting of its overall exposure to
its counterparty. The General Partner will assess or review, as
appropriate, the creditworthiness of each potential or existing
counterparty to an over-the-counter contract pursuant to guidelines
approved by the General Partner's Board of Directors. Furthermore, the
General Partner on behalf of USSO will only enter into over-the-counter
contracts with (a) members of the Federal Reserve System or foreign
banks with branches regulated by the Federal Reserve Board; (b) primary
dealers in U.S. government securities; (c) broker-dealers; (d)
commodities futures merchants; or (e) affiliates of the foregoing.
Existing counterparties will also be reviewed periodically by the
General Partner.
Cash, Cash Equivalents, and Treasuries. USSO will also invest in
cash, cash equivalents, and Treasuries with a remaining maturity of two
years or less. The cash, cash equivalents, and Treasuries are to be
used to meet USSO's current or potential margin or collateral
requirements with respect to its short positions in Futures Contracts
and Other Crude Oil-Related Investments. USSO plans to reinvest the
earned interest income, hold it in cash, or use it to pay its expenses.
If USSO reinvests the earned interest income, it will make investments
that are consistent with its investment objectives.
Creation and Redemption of Units
USSO will continuously offer Creation Baskets consisting of 100,000
Units to Authorized Purchasers through the marketing agent. USSO will
create and redeem Units only in one or more Creation Baskets or
Redemption Baskets. Only Authorized Purchasers may purchase or redeem
Creation Baskets or Redemption Baskets. The creation and redemption of
baskets will only be made in exchange for delivery to USSO or the
distribution by USSO of the amount of Treasuries and any cash
represented by the baskets being created or redeemed. The amount will
be based on the combined NAV of the number of Units included in the
baskets being created or redeemed determined as of 4:00 p.m. Eastern
Time (``E.T.'') on the day the order to create or redeem baskets is
properly received.
Calculation of Partnership NAV. The Administrator will calculate
NAV by taking the current market value of USSO's total assets and
subtracting any liabilities. The Administrator will calculate NAV once
each trading day and the NAV for a particular trading day will be
released after 4 p.m. E.T. The Administrator will calculate NAV as of
the earlier of the close of the New York Stock Exchange or 4 p.m. E.T.
USSO will use the NYMEX closing price (determined at the earlier of the
close of that Exchange or 2:30 p.m. E.T.) for the contracts held on
NYMEX, but will calculate or determine the value of all other USSO
investments as of the earlier of the close of the NYSE Arca Core
Trading Session or 4 p.m. E.T.
Calculation of Basket Amount. USSO will create and redeem Units
only in blocks of 100,000 Units called Creation Baskets and Redemption
Baskets, respectively. The price of each Unit offered in Creation
Baskets on any day will be the total NAV of USSO calculated as of the
close of the New York Stock Exchange on that day divided by the number
of issued and outstanding Units.
The creation and redemption of baskets will only be made in
exchange for delivery to USSO or the distribution by USSO of the amount
of Treasuries and any cash represented by the baskets
[[Page 72895]]
being created or redeemed, the amount of which will be based on the
combined NAV of the number of Units included in the baskets being
created or redeemed as of 4:00 p.m. E.T. on the day the order to create
or redeem baskets is properly received. Additional procedures relating
to the creation and redemption of Units are described in the
Registration Statement.
Arbitrage
According to the Registration Statement, investors and market
professionals will be able, through out the trading day, to compare the
market price of USSO and the Indicative Partnership Value (``IPV''), as
discussed below. If the market price of USSO Units diverges
significantly from the IPV, market professionals will have an incentive
to execute arbitrage trades. Such arbitrage trades can tighten the
tracking between the market price of USSO and the IPV and thus can be
beneficial to all market participants. In addition, quotation and last-
sale information regarding the Units will be disseminated through the
facilities of the Consolidated Tape Association.
Dissemination and Availability of Information
Underlying Spot Price and Price of Futures Contracts. The spot
price of light, sweet crude oil delivered to Cushing, Oklahoma, and the
applicable Futures Contracts are the underlying benchmark investment,
commodity or asset, as applicable, for purposes of NYSE Arca Equities
Rule 8.300(d)(2)(ii).\13\
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\13\ NYSE Arca Equities Rule 8.300(d)(2)(ii) provides that NYSE
Arca Equities will consider removing from listing Partnership Units
if the value of the underlying benchmark investment, commodity or
asset is no longer calculated or available on at a least a 15-second
delayed basis or NYSE Arca Equities stops providing a hyperlink on
its Web site to any such investment, commodity or asset value.
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The NYMEX disseminates price information on the Futures Contracts
traded on the NYMEX on a real-time basis during normal trading hours on
the NYMEX from 10 a.m. E.T. to 2:30 p.m. E.T.
Portfolio Disclosure. USSO's total portfolio composition will be
disclosed each business day that the NYSE Arca is open for trading on
USSO's Web site at https://www.unitedstatesshortoilfund.com. The Web
site disclosure of portfolio holdings will be made daily and will
include, as applicable, the name and value of each Crude Oil Interest,
the specific types of Other Crude Oil-Related Investments and
characteristics of such Other Crude Oil-Related Investments,
Treasuries, and the amount of cash and cash equivalents held in USSO's
portfolio. USSO's Web site is publicly accessible at no charge.
Indicative Partnership Value. In order to provide updated
information relating to USSO for use by investors and market
professionals, NYSE Arca will calculate and disseminate during the
trading day an updated IPV, as described below. The IPV will be
calculated by using the prior day's closing NAV per Unit of USSO as a
base and updating that value throughout the trading day to reflect
changes in the most recently reported trade price for the active
Futures Contract on NYMEX. The prices reported for the active Futures
Contract month will be adjusted based on the prior day's spread
differential between settlement values for that contract and the spot
month contract. In the event that the spot month contract is also the
active contract, the last sale price for the active contract will not
be adjusted. The IPV disseminated during the NYSE Arca Core Trading
Session should not be viewed as an actual real time update of the NAV,
because NAV is calculated only once at the end of each trading day.
The IPV will be disseminated on a per Unit basis every 15 seconds
during the Core Trading Session of NYSE Arca from 9:30 a.m. E.T. to 4
p.m. E.T. The normal trading hours of NYMEX are 10 a.m. E.T. to 2:30
p.m. E.T. This means that there will be a gap in time at the beginning
and the end of each day during which USSO Units will be traded on the
NYSE Arca, but real-time NYMEX trading prices for futures contracts
traded on the NYMEX will not be available. As a result, during those
gaps there will be no update to the IPV. The IPV will not be updated
during the Exchange's Opening Trading Session from 4 a.m. to 9:30 a.m.,
during that part of the Exchange's Core Trading Session when NYMEX is
not normally open for trading (specifically, 9:30 a.m. to 10 a.m. E.T.
and 2:30 p.m. to 4 p.m. E.T.), and during the Late Trading Session from
4 p.m. to 8 p.m. E.T.
The NYSE Arca will disseminate the IPV through the facilities of
CTA/CQ High Speed Lines. In addition, the IPV will be published on the
NYSE Arca's Web site and will be available through on-line information
services such as Bloomberg and Reuters. Dissemination of the IPV
provides additional information that is not otherwise available to the
public and is useful to investors and market professionals in
connection with the trading of the Units on the NYSE Arca.
Trading Rules
The Exchange deems the Units to be equity securities, thus
rendering trading in the Units subject to the Exchange's existing rules
governing the trading of equity securities. The Units will trade on the
NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. The Exchange has
appropriate rules to facilitate transactions in the Units during all
trading sessions. The minimum trading increment for the Units on the
Exchange will be $0.01.
NYSE Arca Equities Rule 8.300(e) sets forth certain restrictions on
ETP Holders acting as registered Market Makers in Partnership Units to
facilitate surveillance. NYSE Arca Equities Rule 8.300(e)(2)-(3)
requires that the ETP Holder acting as a registered Market Maker in
Partnership Units provide the Exchange with necessary information
relating to its trading in the underlying asset or commodity, related
futures or options on futures, or any other related derivatives. NYSE
Arca Equities Rule 8.300(e)(4) prohibits the ETP Holder acting as a
registered Market Maker in Partnership Units from using any material
nonpublic information received from any person associated with an ETP
Holder or employee of such person regarding trading by such person or
employee in the underlying asset or commodity, related futures or
options on futures or any other related derivative (including the
Partnership Units). In addition, NYSE Arca Equities Rule 8.300(e)(1)
prohibits the ETP Holder acting as a registered Market Maker in
Partnership Units from being affiliated with a market maker in the
underlying asset or commodity, related futures or options on futures or
any other related derivative unless adequate information barriers are
in place, as provided in NYSE Arca Equities Rule 7.26.
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Units. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Units inadvisable. These may include: (1) The extent to
which trading is not occurring in the underlying Futures Contracts, or
(2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. In addition,
trading in the Units could be halted pursuant to the Exchange's
``circuit breaker'' rule.\14\ If the value of the underlying benchmark
investment, commodity or asset or IPV applicable to the Units is not
being disseminated as required, the Exchange may halt trading in the
Units during the day on which
[[Page 72896]]
the interruption first occurs. If such interruption persists past the
trading day in which it occurred, the Exchange will halt trading no
later than the beginning of the trading day following the
interruption.\15\ Under Rule 7.34(a)(5), if the Exchange becomes aware
that the NAV for the Units is not being disseminated to all market
participants at the same time, it will halt trading in the Units on the
Exchange until such time as the NAV is available to all market
participants. In addition, if the portfolio composition applicable to
the Units, as disseminated on the Web site for the Units, is not
disseminated to all market participants at the same time, the Exchange
will halt trading in the affected Units.
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\14\ See NYSE Arca Equities Rule 7.12.
\15\ E-mail from Michael Cavalier, Chief Counsel, NYSE Euronext,
to Edward Cho, Special Counsel, Division of Trading and Markets,
Commission, dated November 20, 2008.
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Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products, including Partnership
Units, to monitor trading in the Units. The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Units in all trading sessions and to deter and detect violations of
Exchange rules and applicable federal securities laws.
The Exchange's current trading surveillances focus on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations. The Exchange is able to
obtain information regarding trading in the Units, the applicable
physical commodities included in, or options, futures or options on
futures on, or any other derivatives based on such commodities, through
ETP Holders, in connection with such ETP Holders' proprietary or
customer trades which they effect on any relevant market. With regard
to the Futures Contracts, the Exchange can obtain market surveillance
information, including customer identity information, with respect to
transactions occurring on NYMEX and ICE Futures pursuant to its
comprehensive information sharing agreements with each of those
exchanges. All of the other trading venues on which current Futures
Contracts are traded are members of the Intermarket Surveillance Group
(``ISG'') and the Exchange therefore has access to all relevant trading
information with respect to those contracts without any further action
being required on the part of the Exchange. A list of ISG members is
available at https://www.isgportal.org.
In addition, to the extent that the Partnership invests in Futures
Contracts traded on other exchanges, not more than 10% of the weight of
the Partnership assets in the aggregate shall consist of Crude Oil
Interests whose principal trading market is not a member of ISG or is a
market with which the Exchange does not have a comprehensive
surveillance sharing agreement.
The Exchange also has a general policy prohibiting the distribution
of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin (``Bulletin'') of the special
characteristics and risks associated with trading the Units.
Specifically, the Bulletin will discuss the following: (1) The risks
involved in trading the Units during the Opening and Late Trading
Sessions when an updated IPV will not be calculated or publicly
disseminated; (2) the risks involved in trading the Units during the
part of the Core Trading Session when an updated IPV will not be
available; \16\ (3) the procedures for purchases and redemptions of
Units (and that Units are not individually redeemable); (4) NYSE Arca
Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP
Holders to learn the essential facts relating to every customer prior
to trading the Units; (5) how information regarding the IPV is
disseminated; (6) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Units prior to or concurrently
with the confirmation of a transaction; and (7) trading information.
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\16\ As noted above, the IPV will not be updated during that
part of the Exchange's Core Trading Session when NYMEX is not
normally open for trading (specifically, 9:30 a.m. to 10 a.m. E.T.
and 2:30 p.m. to 4 p.m. E.T.).
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In addition, the Bulletin will reference that each Partnership is
subject to various fees and expenses described in the relevant
Registration Statement.
The Bulletin will also reference the fact that there is no
regulated source of last sale information regarding physical
commodities, that the Commission has no jurisdiction over the trading
of crude oil, heating oil, gasoline, natural gas or other petroleum-
based fuels, and that the CFTC has regulatory jurisdiction over the
trading of futures contracts traded on U.S. exchanges and related
options.
The Bulletin will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
The Bulletin will also disclose that the NAV for the Units will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The proposed rule change is consistent with section 6(b) of the
Act,\17\ in general, and furthers the objectives of section
6(b)(5),\18\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. The Exchange believes that the
proposed rule change will allow the listing of the Units on the
Exchange, which the Exchange believes will benefit of investors and the
marketplace. In addition, the listing and trading criteria set forth in
Rule 8.300 are intended to protect investors and the public interest.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change; or
[[Page 72897]]
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Exchange has requested accelerated approval of this proposed
rule change prior to the 30th day after the date of publication of the
notice thereof in the Federal Register. The Commission has determined
that a 15-day comment period is appropriate in this case.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2008-125 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2008-125.
This file number should be included on the subject line if e-mail is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2008-125 and should
be submitted on or before December 16, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-28419 Filed 11-28-08; 8:45 am]
BILLING CODE 8011-01-P
